Herbalife (HLF) FTC Settlement Is 'Profound Victory,' Pivotal's Ramey Tells CNBC

Herbalife's (HLF) new rules under its $200 million settlement with the FTC are easily obtainable, Pivotal Research's Tim Ramey said on CNBC today.
By Lindsay Rittenhouse ,

NEW YORK (TheStreet) -- The Federal Trade Commission's (FTC) ruling that Herbalife (HLF) - Get Report is not a "pyramid scheme" in a $200 million settlement over the nutrition company's direct-selling business practices is a "profound victory," Pivotal Research analyst Tim Ramey told CNBC's Scott Wapner on today's "Fast Money: Halftime Report."

"Looking at the terms of (the settlement), it's roughly inline with what we expected. Herbalife looked at doing a preferred customer strategy in the spring of 2013 and I think wisely kept this as a bargaining chip with the FTC," Ramey explained.

However, there will be some "hurdles" for Herbalife to overcome such as one of the settlement terms that requires 80% of distributors to now go directly to retail "end" customers. Distributors will have to provide receipts to Herbalife to prove they did so, he continued.

"The basing has always been nutrition clubs. How do you document those sales? I don't know whether (customers) get a free shake after 10 or something like that but they're going to be able to relatively easily document this," Ramey said.

Eighty percent is a "very large" number that some investors doubt can be reached, Wapner noted.

"I think it's relatively easy actually. In the U.S. the business is largely a Herbalife-to-customer business, in other words they ship directly even if they're in somebody else's downline. So I am a Herbalife distributor and I'm going to probably get an email that says 'we're going to convert you to a preferred customer status unless you sign a letter of intent that you're going to try to be a distributor.' I'm really just a customer," Ramey stated.

The 73% of Herbalife distributors are just customers, like Ramey, that have no downline. The "tricky" part will be documenting the company's nutrition clubs, he commented.

Shares of Herbalife are rising 12.9% to $67.02 this afternoon.

Separately, TheStreet Ratings rated Herbalife as a "buy" with a score of B.

This is driven by a number of strengths, which can be seen in multiple areas, such as its notable return on equity, expanding profit margins, solid stock price performance, impressive record of earnings per share growth and increase in net income. TheStreet Ratings feels its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

You can view the full analysis from the report here: HLF

TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.

Loading ...